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(Kitco News) – The European Central Bank is expected to leave monetary policy unchanged this week, but President Mario Draghi likely will reiterate to markets that policy-makers remain ready to undertake more monetary accommodation if necessary, analysts said.

The ECB is scheduled to meet on Thursday.

Eurozone inflation fell in July to 0.4% year-on-year, the lowest level since October 2009, and is well below the ECB’s target rate of 2%. ECB officials have suggested in the past that a rate below 1% poses a risk of deflation.

Still, ECB policy-makers are expected to stay on hold as they continue to monitor the impact of monetary accommodation measures announced in June. Back then, the ECB cut interest rates and said it would conduct targeted longer-term refinancing operations aimed at improving bank lending.

“I am expecting absolutely nothing,” said Christopher Vecchio, currency analyst at DailyFX. “This is a weird in-between meeting where the ECB is still conducting it stress tests (on banks) and collecting data from those results. There has simply not been enough time passed since the June measures to say whether or not the accelerated pace of easing has had the wanted or desired effects.”

Mark McCormick, forex strategist with Crédit Agricole, described the ECB meeting as a “transitional” one.

“They introduced new policy measures a few months ago,” he said. “The targeted LTRO won’t start until September. So now, they’re trying to see the response to the new policy actions they put in place. They’re really in wait-and-see mode.”

He sees potential downside for the euro if Draghi should suggest there are still more downside risks to inflation. “I think they’ll remain pretty assertive about their accommodative stance,” McCormick said. This could provide some headwinds for the euro, especially with the Federal Reserve continuing to taper its bond-buying program known as quantitative easing, McCormick added.

Vecchio and analysts at Barclays also look for Draghi to continue sounding a dovish tone.

“While we and the market do not expect any change in policy, ECB President Mario Draghi is likely to reaffirm the central bank’s commitment to using extraordinary policy measures to ease monetary conditions, including the prospect of ABS (asset-backed securities) purchases, and address very low euro area inflation,” Barclays said in a research note. “We look for further information regarding the implementation of those measures in the press conference, particularly after data last week showed inflation had declined to 0.4% y/y in July and is likely to reach a cyclical low of 0.3% y/y in August and September.”

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If Draghi does not come off as still dovish, Vecchio added, the euro could rally as positioning is “pretty one-sided.” The net-short position in euro futures contracts for the large non-commercial accounts — according to weekly data from the Commodity Futures Trading Commission—is at the highest level since August 2012, he said.

Otherwise, the meeting is likely to be a non-event for the euro, he said. Likewise, Vecchio does not anticipate a big move in gold as a result of the ECB meeting, especially with as-expected outcome.

“That being said, August has been a strong month for gold the last several years on a seasonal basis,” Vecchio said. This is when physical buying often starts picking up ahead of a number of holidays around the globe in autumn and ahead of the Christmas holiday in Western nations.

“And, with all of the geopolitical tensions flaring around the world, it’s hard to imagine that gold is going to take a significant hit in the near term,” he added.

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